Home-Style Hero: Bob Evans' Steven Davis
Steven Davis boosts momentum at Bob Evans by modernizing the brand.
By David Farkas, Senior Editor -- Chain Leader, 5/1/2007
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Bob Evans Farms Chairman and CEO Steven A. Davis has an easy laugh. He chuckles when a visitor speculates that the nonstandard light fixtures in the company’s Florida restaurants may better illuminate menus for senior citizens.
“If I had heard that as an answer, I might have accepted it. But that’s not what I heard,” he says, sitting in a newly redecorated unit next to company headquarters in Columbus, Ohio. “It was a lack of brand discipline.”
The absence of a clear brand message, he adds, produced two years of negative same-store sales that lowered margins for the company’s consolidated restaurants; 591-unit Bob Evans also owns 115-unit Mimis Cafe. Says Davis: “The thing people always raved about was our food, but if you looked at an ad reel, you’d ask, ‘Who’s the advertiser here?’ [The message] was never consistent.”
The chain’s poor performance had also led to the dismissal of CEO Stewart Owens on Aug. 9, 2005. Owens, who joined the company upon the acquisition of his family’s food products business in 1987, was replaced by interim CEO Larry Corbin, a retired Bob Evans executive whom Davis replaced nine months later.
Now, a year into his tenure, Davis is making big changes to re-invigorate the fourth largest family-dining chain in the country after Denny’s, IHOP and Cracker Barrel. His goals include improving same-store sales, store-level profits and returns. To that end, he has jazzed up marketing with a series of hipper commercials, realigned executives’ salaries to match company performance and ordered up a new prototype design.
You Can Go Home Again
Today, Davis is touting Bob Evans as the “home of home-style”—a brand positioning, he says, that returns the 45-year-old chain to its roots. He likens home-style to the kind of food that moms and grandmas prepared once upon a time.
The red-and-white eateries, which will ring up about $1 billion this year, began as a single 12-seat diner in Rio Grande, Ohio, peddling the sausage founder Bob Evans made on his nearby farm. Since then, the restaurants have gained a following for hearty breakfasts and gravy-laden entrees. The manufacturing side of the company still makes sausage and other food products, worth some $250 million a year in sales.
Today, Davis vows, “Everything—menu, marketing, building design, service platforms and price structure—flows through ‘the home of home-style.’ That’s something we didn’t have before.”
To spell out his plan to investors, he has been using a slide show dubbed Best Brand Builders. It traces the company’s past financial performance (mostly dismal) and future (cautiously bright). Returns are a major topic. They’ve been used so far to lower debt, buy back shares, pay dividends and fund organic growth, now practically limited to Mimis, the company’s growth vehicle. Bob Evans expansion is at a standstill until Davis can realign out-of-whack unit economics and tune up a new prototype.
A fully capitalized Bob Evans costs $2.3 million to build and rings up only $1.74 million—a sales-to-investment ratio of 1.0-to-0.75. “You’ve got to have a 1-to-1 to make it work,” he concedes. Davis blames overexpansion and price-driven promotions for the problem. “We had gone on a path of aggressive discounting. It brought in plenty of customers, but it didn’t do much for the P&L,” he sighs.
Operating margins for the restaurant group languished under Owens’ reign, falling from about 8 percent to 5 percent. They’ve inched up recently, to 6.6 percent in fiscal ’07 (ended April 30), a 15 percent gain. At a February investor gathering in New York, Chief Financial Officer Dan Radkoski speculated the chain needed to sustain comparable-sales increases of about 2 percent to return to historical margins, though he did not disclose a time frame. Davis won’t either. “We are working on that now,” he offers.
So far, so good. Davis has scored a couple of home runs with new dishes that helped produce a five-month string of positive same-store sales, running from September to January. It was a major victory considering comps had been negative for nine months. Sales slid 1 percent in February, on account of snow storms in Ohio, where Bob Evans operates 208 of its 591 restaurants, Davis claims. Sales again turned positive in March, up 1.2 percent. And officials at press time expected a positive fourth quarter for the group. Tustin, Calif.-based Mimis has posted comp gains in 45 of the last 46 quarters.
Self-Healing
Investors have rewarded the resurgence. The stock has jumped about 24 percent on solid earnings growth since Davis took over. In mid-April, a share of BOBE traded at $37, about $1 off its 52-week high.
Analyst Amy G. Vinson of Avondale Partners in Nashville, Tenn., calls Bob Evans “an interesting turnaround story,” adding the company has “addressed many of the self-inflicted problems that weighed on performance during the last several years.” She expects EPS to grow 14 percent in fiscal 2007, to $1.56 from $1.32, and 4 percent, to $1.63, in ’08. Still, she and three other analysts who follow the stock and report their findings to Thompson First Call remain cautious, currently rating the stock “neutral” or “market perform.”
Should the fiscal performance go as expected, Davis and four other senior managers including Mimis CEO Russ Bendel stand to reap substantial cash bonuses. According to a recent proxy filing, Davis, who makes $650,000 a year, could collect an additional $455,000, or 70 percent of his base, should he hit undisclosed sales and profit targets. The other executives will add from 37 percent to 50 percent of their salaries if similar targets are met.
Davis pushed for the change to an entirely performance-based compensation plan shortly after he was hired. He aligned it with his Brand Builders program, basing executive pay on the growth of earnings, margins, sales and return on investment. “ROI was really new to them,” he says, sounding a bit surprised.
No kidding. In fiscal 2006, the same filing says, the board of directors granted executive bonuses based partially on “the compensation committee’s subjective assessment.” Interim CEO Corbin got a bonus of $300,000 based solely on such an assessment, according to another company filing.
Corbin, for his part, ended discounting, which helped boost earnings for the year. But all-important same-store sales remained a problem. Says Mimis’ Bendel: “Bob Evans needed leadership, and Davis was an agent for change.”
A rising star during 13 years at Yum Brands, Davis had launched the Wing Street concept while at Pizza Hut, earning himself a promotion to president of Long John Silver’s and A&W All-American Foods Restaurants—the position he occupied when a recruiter called. The Bob Evans offer, he says, was his chance to run a public company.
Yum Brands spokesman Jonathan Blum says Davis was an “outstanding leader with high integrity and character.”
Davis’ familiarity with new product launches came in handy. He says the first time he entered a Bob Evans kitchen he was a kid in a candy store: “I find an oven, fryer, grill, slow roaster, and I’m, like, ‘Wait, we have all this and we’re not doing product innovation?’” Worse yet, he adds, the culinary team didn’t even have a product pipeline. “They told me they didn’t know what they were going to do in the next quarter,” he says, chuckling at the memory.
Best Practices
Late last summer Davis arranged a “best practices” powwow between Bob Evans’ culinary team and Mimis Cafe’s Adam Baird, vice president of food and beverage. Mimis’ menu has been featuring seasonal dishes for over a year, and Davis figured Baird could provide inspiration. He says the meeting helped hone the chefs’ creativity. “They got inspired when Adam talked about how to take existing ingredients and make something exciting,” Davis recalls.
He nods at the plate in front of him, a calorie-laden mass of whipped cream, powdered sugar, strawberry syrup, vanilla cream cheese and banana-studded pancakes. Davis proudly announces that every ingredient was already in the kitchen. Stacked and Stuffed Hotcakes rolled out on the heels of two other successful line extensions: Knife-and-Fork Sandwiches and pasta that featured the Bob Evans Italian sausage.
Although it’s a start, it will take more than home-style foods to bring in new customers—key to Davis’ success at Bob Evans. Consumer research shows that while the chain scores well on friendliness, cleanliness, portion size and prices, customers give it little credit as a fun place to go, a place to take kids or the availability of nutritious food. “It’s a basic chain serving good, basic food,” concludes Bob Sandelman of San Clemente, Calif.-based research firm Sandelman & Associates, who has studied the chain.
Those points are not lost on Senior Vice President of Marketing Mary Cusick, who admits the restaurants need more energy. “Our light and moderate users tell us it’s a dusty brand. It’s for older people,” she says.
She and the chain’s longtime agency, Chicago Creative Partnership, have been trying to attract them with a series of 30-second TV spots featuring blue-collar males in their 30s. The commercials fit the chain’s new products into a contemporary lifestyle. Cusick won’t disclose where she is placing the ads but says her goal at lunch and dinner is to attract younger customers such as families. According to Sandelman, Bob Evans customers skew heavily to 65 years and older.
Timeless Relevance
“Our research tells us ‘home of home-style’ is timeless and gives a quick read on our kind of food,” Cusick explains. “We are trying to morph into a brand that’s relevant for today but builds on the timeless aspects of our heritage.”
To that end, Roger Williams, company president, is overseeing plans with Columbus-based design firm WD Partners for a new prototype, an updated building that will downplay the chain’s farmhouse look. Only the “keyhole” at the top of the buildings façade and the logo itself will remain. Inside, the colors will go from beige and white to bright yellow and red.
“The challenge I gave the team,” recalls Davis, who hasn’t touched the pancakes, “was why should I turn right at the Bob Evans instead of left into another restaurant’s parking lot.” Maybe the lighting is better.
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